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Tuesday, February 5, 2013

The Net Worth of America

Total personal wealth
in the United States in 2010 was about 58 trillion dollars.That
is our net worth. That’s
everything: houses, farms, real estate, bank
accounts, stocks and bonds, mutual funds, cars; net of all liabilities, debts
and mortgages. This number is
important, because it gives us a relative measure to other big numbers, for
example, the national debt, or the unfunded liabilities of the Social Security
system. Incomprehensibly big numbers
become comprehensible when we can compare them to other big numbers of the same
order of magnitude. And our net worth
is a useful yardstick for recognizing when other big numbers are absurd.

Our total net worth is fairly easy to calculate. I took the number of households according to
the age of the Head of Household from the 2010 Census. I found the mean and median net worth
according to the age of the Head of Household from survey data published by the
Federal Reserve. From the mean figures,
we can see the total wealth by the age group, and from the median figure, we
see the wealth of a typical family. My
estimate of the $ 58 trillion total net worth of the United States compares favorably
to the $50 trillion published by Harvard
in 2004, and $ 54 trillion published for 2009 in Wikipedia (but unreferenced). By comparison, global household net worth in
2000 was estimated at $ 125 trillion, adjusted for purchasing power (calculated
from data in Davies, et al, 2007).

The household net worth figure includes the value of most of
American businesses, through ownership of stock and mutual funds by
individuals, including 401k and other retirement plans. It does not include the value of trusts,
churches, non-profit organizations, co-operatives, and pension funds; or the
net worth of local, state and federal governments; or of publically owned
infrastructure. But for this
discussion, let’s consider that household wealth represents the net worth of
the United States, and disregard the possibility of selling Alaska back to
Russia, or Louisiana back to France.

Distribution of Wealth by Age

Wealth in America is
concentrated in middle-aged and elderly households. About ninety percent of the wealth in America
is held by people over 45 years old. About
sixty-five percent of the wealth is held by people over 55, and thirty-three
percent by people over 65 years old. A
chart shows the mean and median distribution of net worth by age of household;
the wide separation between the mean and median lines indicates the skewness of
the distribution of wealth in America.

The median net worth for young families (< 35 years old)
is $9,300, less than one-third of the global average household wealth ($33,800,
Davies et al, 2007). The deteriorating economic condition of many
families can be seen by comparing the median net worth by age across through
the first decade of the century. The
2008 recession had a significant impact on family wealth in all households
except the most elderly.

The concentration of wealth in older households has consequences for children in America. Households headed by people under the age of 35 have the lowest net worth, and of course, these are the households raising small children. Twenty-two percent of American children are living in households below the poverty line, which is defined as having less than half of the income needed to cover basic expenses. Forty-five percent of American children live in low-income households.

Net Worth of America, by Comparison to Other Big Numbers
We can compare a few other economic numbers to the $ 58 trillion in household wealth, which provides a yardstick for seeing the significance of other big numbers.

United States' externally held ("publicly held") debt is about 12 trillion dollars. Including government debt held by other government agencies (representing the Social Security trust fund), the total US federal debt is about $ 16 trillion, or 27 percent of our total net worth.

The total value of publically traded stocks, representing the market value of all major companies in America, was about $ 12 trillion in 2010, or about 20% of household wealth. Total market value of all stocks today is about $ 16 trillion.

The United States currently has a negative net international investment position. Foreign interests hold a net $ 2 trillion dollars of American wealth, greater than the assets which Americans own overseas.

The United States money supply (M2) is about $ 10.4 trillion. This measure of money supply has increased from about $ 7.7 trillion in late 2008, and increase of $ 2.7 trillion. The increased money supply is largely a result of the Federal Reserve program termed “quantitative easing”.

The Wall Street Journal recently published an article by Republicans Chris Cox and Bill Archer, which claimed that unfunded liabilities for Social Security and Medicare are accruing at a rate of $ 7 trillion per year. According to Cox and Archer, unfunded liabilities for these programs now total about $ 87 trillion. If correct, the unfunded liabilities of these programs befitting senior citizens greatly exceed the total net worth of all households in America.

22 percent of children are in households beneath the poverty
level, defined as $23,000 income for a family of four, or less than half of
what is needed to meet basic expenses.
45 percent of children are living in low-income households.

The actual liabilities of the federal government—including
Social Security, Medicare, and federal employees' future retirement
benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending
Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was
$7 trillion.

Here’s a bit of trivia for you. There is about one ton of neodymium in every large wind turbine. Neodymium is element number 60 on the ...

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About me, consider my favorite quote about Don Quixote, from "The Man of La Mancha":

...A country gentleman, no longer young. Being retired, he has much time for books. He studies them from morn to night, and often through the night and morn again, and all he reads oppresses him; fills him with indignation at man's murderous ways toward man. He ponders the problem of how to make better a world where evil brings profit and virtue none at all; where fraud and deceit are mingled with truth and sincerity. He broods and broods and broods and broods, and finally his brains dry up. He lays down the melancholy burden of sanity...."